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Are ACOs Unaffordable?

Jeff Elliott, for HealthLeaders Media, March 28, 2011

Only two of the 10 participants received shared savings payments in the first year, with only half qualifying for the bonus by year three. The report concludes that groups investing $1.7 million would need a 20 percent margin to recoup their investment within three years.

The authors insisted they’re not discouraging hospitals from exploring ACOs, but are suggesting that flaws, including investment costs, must be addressed or it simply won’t make sense for most physician groups to participate.

“We published the article to make certain that executives fully weigh the risks before becoming swept up in the moment, said Trent Haywood, VHA’s chief medical officer and co-author of the article. He adding that they even took a very conservative approach to their analysis by considering physician groups’ operating expenses for the first year alone.

Because ACOs have yet to prove success, the authors recommend that CMS modify the current model by limiting participation to only the largest and strongest hospitals and physicians groups that could absorb the early losses. Or CMS could change the payment design from an annual model to a cumulative one—allowing for shared savings in which the regulator would assess the aggregated performance of a healthcare provider over several years and reduce the payment threshold for shared saving accordingly.

“We know that CMS successfully implemented a bundled-payment pilot in the past and that it improved quality, generated shared savings and did not pose the financial risks that are embedded in the ACO model,” said Haywood, formerly the deputy chief medical officer with CMS.

Haywood is optimistic that groups such as VHA still have CMS’ ear before it soon decides on ACO participation requirements. CMS has until Jan. 1, 2012 to establish the driving force behind ACOs—the Medicare Shared Savings Program--according to regulations published in the Accountable Care Act.

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